Facebook is to launch the cryptocurrency Diem as the Covid-19 pandemic forced the world to stay home, and the number of eCommerce transactions increased exponentially for consumers and business leaders during 2020.
Online shopping was often the only way to make a purchase during the many lockdowns of the pandemic. As a result, Facebook decided to launch its own cryptocurrency, called Diem.
Diem, previously known as LIBRA in 2019, will challenge other competitors in the cryptocurrency market such as Bitcoin, Dogecoin and Ethereum. The product recently changed its name to Diem.
Cryptocurrency Uses Digital Files as Money
Cryptocurrency is a type of currency which uses digital files as money. Usually, the files are created using the same methods as cryptography, the science of hiding information. Cryptocurrencies use “decentralized control,” which means that they aren’t controlled by any regulatory authority or government.
With billions of users across the world, the social media giant already owns a digital currency project known as Credits. Easy payments for Facebook games are already being made with Credits.
Diem Makes it as Easy to Transfer Cash as it Sends Photographs
Mark Zuckerberg, the creator of Facebook, stated that users will transfer money just like they send their photos of a party. The revised digital currency product Diem is specially designed for users to transfer money for a cheaper fee, easily.
Easier use will attract more potential users to the social networking site as well, he hopes. There is also another new subsidiary of Facebook that works as a digital wallet, called Novi, providing affordable access to certain financial services. Facebook will be one of the 26 investors with the same roles and responsibilities as the other investors, such as Shopify, Spotify, Uber and Lyft.
Facebook Diem Will Use Blockchain Storage
Diem will run a blockchain-based payment system. Blockchain is a specific type of database.
The payment differs from a typical database in the way it stores information, in that blockchains store data in blocks that are then chained together.
As new data comes in, it is entered into a fresh block. Once the block is filled with data, it is chained onto the previous block. The data is chained together in chronological order. Different types of information can be stored on a blockchain. The most common use so far has been as a ledger for transactions.
For crypto currency, blockchain is used in a decentralized way so that no single person or group has control — rather, all users collectively retain control. A security breach is therefore less likely.
Decentralized blockchains are immutable, which means that the data entered is irreversible. Cryptocurrency transactions are permanently recorded and viewable to anyone.
Facebook using cryptocurrency will have stable valuation
The system allows real-time transfer of Diem Stablecoins. The cryptocurrency will register as a money services business with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, the group said.
Stablecoins are digital currencies pegged to a fiat currency. California-based Silvergate Bank will issue the Diem USD Stablecoin. Silvergate will manage the Diem USD reserve. Diem said it would launch a pilot of the Stablecoin.
A Stablecoin is a new class of cryptocurrency that attempts to offer price stability and is backed by a reserve asset. Stablecoins have gained traction as they attempt to offer the instant processing and security or privacy of payments. And because they are fiat currencies, Stablecoin valuations are stable and volatility-free.
Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins may be pegged to a currency like the U.S. dollar or to a commodity’s price such as gold.
They achieve their price stability through collateral backing or through algorithmic mechanisms of buying and selling the reference asset or its derivatives.
The group wanted the initial Libra project to power transactions between consumers and businesses around the globe, and offer more people access to financial services.
Facebook Libra Haunted by Cambridge Analytica Controversy
But the project immediately ran into fierce opposition from policymakers globally. They worried it could erode their control over the money system, enable crime, and harm users’ privacy. Facebook’s embarrassing history of failing to protect users’ privacy and data following the Cambridge Analytica controversy added scrutiny to the original Libra project.
In April 2020, Libra and its partners abandoned plans to hold a basket of currencies and sovereign debt in favor of Stablecoins, backed by major currencies, and sought the Swiss regulator’s approval.
Libra rebranded as “Diem” in December of 2020. Repurposed to gain regulatory approval, it scaled back to a single dollar-backed digital coin.
Scaling back global ambitions to focus on the United States, the association will relocate its main operations from Switzerland to the United States. It will also withdraw its payment system license application with the Swiss financial regulator.